Midwest may be clearing path for merger with AirTran

AirTran Holdings' long-running bid to buy rival Midwest Air Group gained momentum Tuesday when the operator of Midwest Airlines finally relented and said it would consider selling itself.

Midwest, which has spent almost two years and $3 million fighting AirTran's hostile takeover attempt, announced that it had formed a committee of directors charged with beginning merger talks.

Analysts called it the strongest signal yet that Orlando-based AirTran will be able to pull off a nearly $400 million deal that it hopes will help transform AirTran Airways from a largely East Coast carrier into a nationwide airline.

"Looks more likely something's going to happen there," said Ray Neidl, an airline-industry analyst for Calyon Securities. "We're quite a bit closer than we were a week ago."

AirTran executives expect to immediately begin combing through Midwest's internal finances in hopes of finalizing an agreement by a self-imposed deadline of Aug. 10.

"We look forward to working with the committee," Joe Leonard, AirTran's chairman and chief executive officer, said in a prepared statement.

But AirTran might not be the only suitor for Midwest, a small discount carrier with hubs in Milwaukee and Kansas City, Mo., known for handing out free chocolate-chip cookies on every flight.

In its announcement, the company said its committee would meet with AirTran and with "other strategic and financial parties that have recently expressed interest in pursuing a transaction with Midwest."

Midwest spokeswoman Carol Skornicka said the airline had already signed confidentiality agreements with "several" interested parties, a customary step before allowing them access to company details such as labor agreements and in-depth financial data.

Skornicka would not identify the suitors. But Marisa Thompson, an analyst with Morningstar, said it's possible that other airlines or private-equity firms are interested in Midwest.

Thompson cited Southwest Airlines and United Airlines as possibilities.

"There's a lot of airlines with significant cash on their balance sheets, and I'm sure some of them are looking for places to deploy that cash," Thompson said.

A spokeswoman for Southwest said in an e-mail that the airline has not expressed an interest in Midwest. A spokeswoman for United said the company would not comment on "speculation."

It's also possible that Midwest is simply trying to manufacture interest in hopes of pressuring AirTran into raising its $389 million cash-and-stock offer even further.

"I certainly think AirTran is at the forefront" of any suitors, Thompson said.

Pressure to reconsider AirTran's offer has been building on Midwest executives for months, and it peaked last week when the airline reported a sharp decline in quarterly earnings. At the same time, AirTran reported its profit had climbed almost 30 percent.

Wall Street made it clear it expects something to happen: Shares of Midwest spiked nearly 11 percent after the airline's announcement Tuesday, rising $1.33 to $13.94.

Shares of AirTran slid a little less than 1 percent, declining 8 cents to $9.84.